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Public Online Seminar: From Silver to Platinum: The Effect of Frequent Flier Tier Levels on Airline Demand by Prof. Jos van OMMEREN (5 May 2020)

Title: From Silver to Platinum: The Effect of Frequent Flier Tier Levels on Airline Demand
Speaker: Prof. Jos van Ommeren, Professor, School of Business and Economics, Vrije Universiteit Amsterdam
Date: 5 May 2020

We estimate the effect of tier level within a frequent flier program on members’ demand by exploiting several thresholds corresponding to different tier levels. We demonstrate that members tend to increase demand at the end of the calendar year to reach a higher tier level. We also show that members do not manipulate demand in earlier months, which allows us to apply a fuzzy regression discontinuity approach to identify causal demand effects of higher tier levels. We show that obtaining a higher level induces members to increase their demand, but these results are tier level specific. The lowest tier level induces members to increase their annual demand by only one flight, while the highest tier level increases their demand with 7 flights. We show that tier levels create switching costs for high-demand members as these members are not affected by free flight awards.

Jos van Ommeren (1966) is Professor of Urban Economics at the VU University. He studied Econometrics at the London School of Economics, United Kingdom and received his PhD in Economics at the VU University Amsterdam. His main interests are in the economic analysis of transport and urban issues, including company car taxation, agglomeration, spatial structure, infrastructure improvements, parking policy, congestion and Airnbnb.

Jos has also worked at the Dutch Central Bank, the European University Institute, University College London, Cranfield University and Frisch Centre. He is a fellow of the Tinbergen Institute.